Huge Divide in Employment Data


The payroll employment survey, which has been consistently undershooting actual employment gains, rose by a surprisingly small 210,000 jobs in November. The establishment data has not only consistently been revised up in recent months as more data became available, but it is increasingly hard to seasonally adjust the data given the distortions created by the pandemic. The number swings are too large to capture with the old rules of thumb used to make those adjustments. The data for the last two months, September and October, were revised up yet again with the November payroll employment release.


The household survey, which calls actual households, surged by more than 1.1 million jobs during the month, the strongest gain since October 2020. Reality is somewhere in between but it suggests that the overall labor market was much stronger than the payroll data alone would suggest during the month.


It is important to note that other data in the household survey were remarkably strong for the month. The unemployment rate plunged to 4.2%, while participation in the labor market moved up to the highest level since March 2020. The strongest gains in participation were among Hispanic men and women, who were hit harder by layoffs at the onset of the pandemic. The largest drop in participation was among Black women.


The ranks of the long-term unemployed, which were concentrated in the leisure and hospitality and retail sectors, fell by more than 100,000 during the month. This contrasts with the sharp slowdown in hiring in leisure and hospitality and drop in retail we saw in the establishment survey. Those working in leisure and hospitality and retail were among those who were hit hardest by initial layoffs.


Other evidence that hiring was closer to the household survey showed up in the data on travel and tourism. Throughput at TSA checkpoints hit the highest level since 2019 during the month, while hotel room occupancies picked up along with Open Table reservations.


Separately, those working multiple jobs remain one million below the levels we saw in February of 2020. That is unchanged from October and suggests that the upward pressure on wages, which looked as though it slowed in the establishment survey remains intact. The rise in pay for low-wage jobs and the ability of workers to work one instead of multiple jobs is welcome news. One client, who raised wages for its lowest wage workers in recent months, told me of the letters of relief and gratitude women in particular sent them; they were elated to be able to work one instead of two jobs to make ends meet.


The details on the establishment survey reveal the ongoing stress between the private and public sectors. Private payrolls rose by 235,000, while public sector payrolls fell by 25,000. The losses were concentrated in public education, where fear of contagion and a reluctance to raise wages have resulted in severe labor shortages. Some schools extended their Thanksgiving closures to the entire week, with little warning. That forced parents to scramble to find childcare that is still scarce. Employment in the childcare sector is still down by 108,000 jobs from February 2020.


Hiring in professional services was the largest, single driver of private sector gains in the payroll data. Gains were broad-based. Professional services firms are on the cutting edge of the war on talent as demand for accountants, tax professionals and consultants is soaring.


Average hourly earnings rose 0.3%, slightly less than expected, with a drop in wages in leisure and hospitality. That translates to a 4.8% gain from a year ago, which is still strong. I highly doubt we actually saw wages in the lowest wage jobs retreat during the month, given the intense competition for workers from the largest tech-savvy retail behemoths. They continued to raise wages and offer signing bonuses to staff up for the holiday season.


Hours worked increased slightly, driven by manufacturing, construction and the mining and logging industries. A pickup in computer chip deliveries has enabled vehicle production plants to ramp up again. The only real weak spot in manufacturing was at John Deere, which had 10,000 workers on strike during the week the survey was taken. That suppressed overall manufacturing gains for the month.




Bottom Line


The headline on payroll employment should be taken with a grain of salt. The labor market is healing faster than that data suggest. The Federal Reserve will welcome the drop in unemployment and jump in participation in the labor market with open arms. The shortfall in payrolls will not stop the Fed from accelerating the pace of tapering at its December meeting. The Fed is now expected to end its purchases of Treasury bonds and mortgage-backed securities by March, instead of June. That will leave the door open for a liftoff in rates in June.






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Copyright © 2021 Diane Swonk – All rights reserved.  The information provided herein is believed to be obtained from sources deemed to be accurate, timely and reliable. However, no assurance is given in that respect. The reader should not rely on this information in making economic, financial, investment or any other decisions. This communication does not constitute an offer or solicitation, or solicitation of any offer to buy or sell any security, investment or other product. Likewise, this communication serves to provide certain opinions on current market conditions, economic policy or trends and is not a recommendation to engage in, or refrain from engaging, in a particular course of action.


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